GLOBAL MUTUAL FUND MARKET
Mutual funds are investment funds, they are ideal investment medium for small investors in stock market. The popularity of mutual fund is growing as they maintain a customer centric approach and make investment efficient and flexible. They also enhance market transparency.
The global mutual fund assets market size was valued at more than $50 trillion in 2019. Rise in disposable income in emerging markets, increased financial literacy drived the growth in this industry for the recent years.
In December 2020, US and India’s mutual fund industry received “top” grade for robust disclosure practices in areas such as fees and transparency of fund holdings. above-average grades received by Canada, Korea, Taiwan, Thailand, South Africa, and Sweden; while Singapore, Switzerland, Belgium, Italy and Japan received below-average grades.
IMPACT OF COVID 19 ON MUTUAL FUND INDUSTRY
Spread of Covid 19 and the meltdown in oil prices have affected market sentiments and contributed to the high volatility and decline in global equity market. The cash flow situation has been tremendously hindered due to elevated cases of corporate defaults.
The lockdown forced people to stay at home, thus it hit customer movement, but paved a new way to digital platform of mutual funds. Mutual fund industry quickly adopted the new technology.
The companies focused on a more customer centric approach, planted robo-advisers, blockchain, AI etc. Governments in several countries are taking steps to further encourage online platforms. Increased proliferation of a large number of private sector funds, and regulatory mechanism, which consequently fueled the market growth.
Distributors will have to discover a solution to sustain themselves, especially smaller players, from a cash flow and sustainability perspective.
The methods could be adapting the conventional mode of communication, switching their product sales pitches and risk management for their clients. Independent financial entrepreneurs (financial advisors) will have to adapt to new digital measures and embrace new channels of communication, including WhatsApp /Telegram and email, but mostly importantly, their own digital app.
Financial advisors would now have to re-engineer who will represent – rather than concentrate on potential consumer additions – to consolidate their base and raise the share of their current customers by showcasing a broader variety of products and services.
CHANGE IN WEALTH MANAGEMENT PRACTICE POST COVID 19
Clients are now expecting more from asset managers, be they transparent fee rates, investing prices or a genuine open architecture that enables the best financial offerings to be distributed to their portfolios. Reputations of investment managers are also rendered (or tarnished) during financial crises.
Those administrators who participated and spoke frankly and directly to their clients during the global financial crisis appeared to do well than those who did not. Likewise, investors should speak to management, try to understand the pressures facing the fund and collaborate with managers to reduce the immediate and longer-term consequences of the pandemic.
Although face-to-face meetings with managers may not be possible, most funds permit investor and advisory committee meetings to be held electronically and investors may wish to be pushing for these on a more regular basis. This is giving rise to advisory services in coming years and greater dependence on technology and digitization. There will be changing investment patterns that reflect lower cost of investing for clients.
STABLE MUTUAL FUND- STRATEGIES INVESTORS PREFERRING DURING THE PANDEMIC
Large-cap funds: Large-cap funds invest in big corporate names. Their stocks tend to be less volatile and better than mid-cap or small-cap stocks. So, when the market is bearish, one can expect his/her notional losses to be contained.
Hybrid or balanced fund: These invest in a mix of asset classes, which allows investor to hedge bets. Since each portfolio is diversified between debt and equity securities, the investor needn’t worry about market risks and other uncertainties.
Systematic Investment Plan (SIP): When share prices take a beating, investor can choose to invest through SIPs.
GROWING PREFERENCE FOR GLOBAL/INTERNATIONAL MUTUAL FUNDS
Global mutual funds invest in companies which are all around the world. Thus, investors can invest in international markets. It opens up the opportunity to invest in the fastest growing markets in the world and earn good returns. Also, one may be exposed to market risks if not aware of the market trends, currency exchange rate fluctuations can also hurt the portfolios.
There are international funds dedicated to the US market, Europe, Brazil, China, Asian markets, emerging markets, among others. There has been a growing preference for international funds iin pursuit of more diversification.
The explanation for choosing these global funds, aside from diversification and hedging risk across a combination of assets and markets, is that countries and regions are subject to economic cycles; an investment portfolio will gain smooth returns by investing across economies.